July 2, 2014

FTC Accuses T-Mobile Of Adding Bogus Charges To Bills

On Tuesday the Federal Trade Commission (FTC) accused wireless carrier T-Mobile of making hundreds of millions of dollars by charging its customers for bogus services, such as "premium" SMS subscriptions that were never authorized.

The FTC alleges that the carrier received as much as 40 percent of the total amount charged to customers content subscriptions that may have included "flirting tips, horoscope information or celebrity gossip that typically cost $9.99 per month. According to the FTC’s complaint, T-Mobile in some cases continued to bill its customers for these services offered by scammers years after becoming aware of signs that the charges were fraudulent," reported Truman Lewis for Consumer Affairs.

This is known as "cramming," reported Brett Molina for USA Today, where the carrier placed a charge for services from a third-party company on the consumers' bill without authorization or even alerting them to the fact. The FTC has alleged that T-Mobile also made it very difficult for its customers to detect the charge.

"It's wrong for a company like T-Mobile to profit from scams against its customers when there were clear warning signs the charges it was imposing were fraudulent," said FTC Chairwoman Edith Ramirez in a statement. "The FTC's goal is to ensure that T-Mobile repays all its customers for these crammed charges."

These charges to customers reportedly go back to at least 2009 and through at least December 2013. The FTC uncovered through internal company documents that T-Mobile had received a high number of consumer complaints beginning as early as 2012. The FTC determined that because such a large number of people were seeking refunds that it was apparent the carrier was charging for services never authorized by its customers. The refund rate also likely significantly understates the percentage of consumers that may have been crammed.

The FTC's complaint against the carrier also alleges that T-Mobile had billing practices which made it difficult for consumers to know they were being charged for these services or by whom. When viewed online the bills did not show that customers were charged by a third-party or that the charge was part of a recurring subscription. Instead users would see charges listed as "Premium Services" but that was only seen under the separate heading called "Use Charges."

When a consumer clicked through it was not possible to see the individual charges, and when the information was listed it was done so in an abbreviated form, such as "8888906150BrnStorm23918," but that did not explain that the charge was actually for a recurring third-party subscription supposedly authorized by the consumer. The FTC further alleges that T-Mobile claimed consumers had authorized the charges despite having no proof of consumers doing so.

When consumers did in fact determine that the carrier was charging for services they hadn't ordered, the FTC alleges that T-Mobile failed to provide full refunds and in many cases offered only partial refunds for two months' worth of charges. In other cases the consumers were instructed to seek refunds directly from the third-party services – but without providing a way to contact those companies.

"Consumers should always check their bills," said Roger Entner, principal analyst at Recon Analytics. "This type of aggressive, fraudulent behavior was not uncommon among premium SMS providers. On one hand, carriers want to provide freedom and choice and don't be a gatekeeper, at the same time they are the shepherd of the customer's bills."

Telecommunications industry analyst Jeff Kagan concurred that customers should always check all their bills, every month.

"No one does," Kagan told redOrbit, "but that's what they should do. If this is true and T-Mobile did overcharge customers, the next question is was it intentional or accidental?"

He added that it is unlikely T-Mobile or any successful company would in fact intentionally overcharge customers.

"Some do of course, but I would be surprised if that's what we are seeing here with T-Mobile," Kagan noted. If it was true he pondered, "Was it due to an honest mistake or lack of care? An honest mistake the market can live with. Every one of us makes honest mistakes from time to time. Same with companies; however if it was because of inadequate controls or lack of care – that could be a different story."

While T-Mobile currently finds itself in the hot seat, it is likely not the only carrier to have been involved in cramming.

"All carriers were affected, but some carriers were a lot more aggressive in protecting their customers than others," Entner told redOrbit. "Premium SMS was very profitable for the carriers and they were in a conundrum between profiting from premium SMS services and curtailing its excesses. Little known to the public, AT&T was the most vigilant on behalf of their customers and was the first to shut the entire program down because the problem proved unfix-able. Other carriers were a lot slower than AT&T to shut these programs off. What you see here is the FTC going after a carrier that was slow to come to that realization."

In fact Kagan for one said he would give T-Mobile the benefit of the doubt, "and as long as this is not repeated I think it will not harm T-Mobile."